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In a previous blog, I wrote that I thought someone (like Paypal) should create a service that does something like this:

You bring money to a convenience store, like 7-11, and deposit it into your account.
You then use that money online for purchases, or alternatively, use your cell phone to make purchases from live retailers electronically.

This gives people without bank accounts (which is 1 in 13 American families) access to the electronic transaction world those of us with such accounts take for granted. Meanwhile, a whopping 1 in 4 US households rely primarily on services like Payday lenders and Pawn Shops for financial services.

It turns out, there's a company doing most of this already, called Kwedit. The stealthy (?) thing about this, at the moment, is that it's exclusively operating in the world of online game payments. They've gotten press in places like the the Colbert Report and GeekDad, as a way of teaching kids about credit (for good or ill). I suspect, though, that once you get this model in place virtually, it's just a hop, skip and a jump to extending it to other online transactions. Could this be a very big thing down the road?

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Comment by Claudia Flores Saviaga on April 14, 2010 at 9:51pm
thanks for sharing this
Comment by DGCmagazine Editor on April 14, 2010 at 10:18pm
Hi, this is an excellent question. I've been working at this situation for some time now in the U.S. and it's very difficult. I've emailed the sales guy at Kwedit and the CEO. They are a great team there. My concept is to sell a prepaid digital currency card and have Kwedit provide the 'virtual shelf space'. In other words buy the voucher online (print it out) visit a 7-11 pay cash, and the online company you bought it from will then transfer to your digital account some digital currency. As an example, a bad one but I'll put it out, you go to PayPal, press add $50, you then print out the Kwedit pay/receipt, visit 7-11 and pay. After payment, they automatically notify PP and the $50 appears in your account. They CAN do this. There are several digital currency companies that offer prepaid cards along with paymer type receipts so it's very possible this can be done. Here are the drawbacks, the company working though Kwedit has to be a U.S. company licensed as a money transmitter (which is entirely possible) in the states where they have clients. That in itself is not such a big deal. Drawback number 2, Kwedit would only do small amounts at a time, like a $20 payment or at most a $50 payment, their amounts are preset. Kwedit would have to get their legal counsel to sign off on the type or digital currency, so we are not sure if they would on Webmoney, but there are other companies that perhaps could set up the 'prepaid card' (Webmoney is the best) the legal dept has to approve that...and finally, Kwedit does not pay out but every 7 day. So if you sold a million dollar a day in prepaid digital currency and had to deliver that upon the cash payment at 7-11 as we planned they you have millions in cash float you have to cover waiting for that 7 days to clear and to receive the payment from Kwedit. It's a brilliant idea, it can be done but it has drawbacks and needs big cash. To get any prepaid digital currency type card hanging across the country from a regulatory standpoint is the most difficult part of the equation, but it can be done.

Mark
Comment by Dr Pete on April 14, 2010 at 11:05pm
Hi Mark! Welcome, and thanks for the very interesting reply! It's great to hear that someone is thinking along the same lines!

I imagine that some of those issues (fixed small payments and limited payouts) may be the result of the relatively new/untested status of a service like Kwedit. I could imagine them operating something like this in phases:

First, develop a functioning, profitable enterprise centered on the "virtual goods" market, getting the kinks worked out on the receipts and 7-11 payment centers. Next, expand into other online currency spaces and prepaid visa-type cards.

Once you get out of the entertainment/novelty space and into something like traditional banking, I imagine that you'd have to move toward faster clearances and more flexible dollar amounts, which Kwedit may just not be "ready" for at this stage. On the other hand, there could easily be other issues with having clients arrive at a 7-11 with $1000+ dollars to deposit that expose limitations to that model. I'd be very curious to learn about comparable systems outside the US (like WebMoney), and how/if they've dealt with issues like this.
Comment by DGCmagazine Editor on April 14, 2010 at 11:29pm
I would guess that your assumptions here on developing this cash product are right on target, since this is so new in the US.
Webmoney is the global digital currency leader. What do I mean "digital currency" money that circulates on the Internet and does not go though a bank or conventional banking systems. PayPay is an online payment system. Digital currency transactions are not reversible, this is very important to understand, all banking and credit card transactions are reversible and feature the always exciting "chargeback" for merchants :-) Digital currency = no chargebacks, thus lower fees. In Russia, they have cash-in terminals, small candy machine looking touch screen terminals that connect to a NON bank system via a radio signal like a cell phone, anyone can walk up and feed cash notes into the machine for instant credit to a Webmoney account or you can pay your bills via the terminal also. They don't much care for banks in Russia since '98. So digital currency systems are ever present there. They are also partner with Ukash, which is licensed out of the UK. Ukash is similar to Kwedit, you may walk into any location across UK, Europe and now Russia and with cash pay the cashier (no charge cards cash only) they accept it and give you a paymer type receipt with a number on it. You go online and spend the cash by inputting the number. If you have a WM account, you can load your digital currency account instantly by inputting your Ukash number at the WM web site. There is also a system called paycash and in Arab countries they have a similar system with cashU cards, pay cash, get online money. Virtually every country around the globe has walk in cash solutions for online money except the US. There are about 150,000 cash in terminals around Moscow, you can't swing a dead cat without hitting 6 of them, it is so simple to use. I was in Moscow last fall and did an entire issue on them including the cash terminals if you would like more info. http://www.dgcmagazine.com/dp/node/40 around the globe, WM has partnered with all these companies so local people with cash can load their digital currency account.
Webmoney also has WMnotes.com which are a paymer type product, a note that you can load money onto, split it up or spend it online, that is an amazing product which is OK across the EU in terms of regulations, but also new so not widely used. Very cool stuff.
Mark
Comment by Dr Pete on April 15, 2010 at 10:13pm
Very interesting, thanks! Digging into this a little more, I find two issues that make me wonder, though...

First off, the money laundering issue. Is this essentially an inevitable feature (and therefore potential legal nightmare) for someone trying to create a service like this in the US?

Second, what financial services do the "unbanked" actually need? At a minimum, I can identify check cashing and easy bill payment. Remittances, loans and savings accounts would be the next tier. How, if at all, would a digital currency system deal with something like a bank check? What, if any, interface is there between electronic currency systems and banking institutions? Is digital cash actually a solution for those living check to check, or is it primarily of interest to another group?
Comment by KingofthePaupers on April 17, 2010 at 1:49am
Dr Pete: "someone (like Paypal) should create a service that does something like this:
You bring money to a convenience store, like 7-11, and deposit it into your account. You then use that money online for purchases, or alternatively, use your cell phone to make purchases from live retailers electronically.
Jct: And for people with no money, you bring an IOU for time to a LETS timebank and then use those timedollars online for purchases, or alternatively, use your cell phone to make purchases from live retailers electronically. Your way, only people with cash can play. My way, everybody with time to work can play.
Comment by Shakwei Mbindyo on April 17, 2010 at 2:09am
+1 creativity. I have talked about Kenya's mPesa (mobile money) in previous posts. mPesa allows anyone with a mobile phone from this mobile provider to store money in his phone and transact i.e pay utility bills, pay for shopping at stores, pay for airline tickets,give/loan money to family and friends. If someone sends you money to your mobile phone, you can even go to an ATM and withdraw the money even if you do not have any bank account - pretty nifty!
Comment by Dr Pete on April 17, 2010 at 4:21pm
King: Though I like the idea of timebanks, at this point I see them as community building exercises (in the US, at least) more than as a route to payment. If someone has a scheme for converting "I worked 10 hours doing timebank services" into a cash equivalent, I'd certainly be interested in hearing about it!

Shakwei: mPesa was what got me thinking about this in the first place, though I didn't know the name of the service at first. I definitely like this model. I have a phone with money deposited in it, but I can only use that money for "phone services (text messages, minute overages, etc)"... it would be terrific if I could use it to pay other bills!
Comment by KingofthePaupers on April 18, 2010 at 3:29pm
Dr. Pete: "King: timebanks, at this point... as community building exercises (in the US, at least) more than as a route to payment."
Jct: Regardless, time is the ideal numeraire and will Millennium Declaration C6 for time-based currency will someday triumph over yellow or silver dirt or houses.
"I worked 10 hours doing timebank services" into a cash equivalent, I'd certainly be interested in hearing about it!"
Jct: What do you want the cash for that your timedollars can't buy?
"mPesa was what got me thinking about this in the first place, though I didn't know the name of the service at first. I definitely like this model. I have a phone with money deposited in it, but I can only use that money for "phone services (text messages, minute overages, etc)"... it would be terrific if I could use it to pay other bills!"
Jct: And why can Africans with no bank accounts use phones but Americans with bank accounts can't?
Comment by Dr Pete on April 19, 2010 at 1:59pm
King: here's an example... I babysat for 2 hours, and I would like a laptop (or maybe just a DVD). How do I acquire one from the timebank? I don't see how that would work.

Among the issues timebanks seem to have is the notion that some people's services are more valuable than other people's services. It may not be fair, but 2 hours of a doctors time are probably worth more/more in demand than 2 hours of babysitting, and it doesn't make much sense for a doctor to offer his time in exchange for the same amount of babysitting. If you want an idea numeraire, perhaps "energy" or "energy cost" would be more useful.

As to why we can't do this stuff with phones, it seems to be the result of our regulatory environment, which is not very friendly towards electronic currencies. We've got online banking services but no electronic cash here.

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